If you walk into a Tuesday Morning store, you might not be all that impressed.  It’s the epitome of closeout stores, a kind of higher-end Big Lots, or rich-man’s Family Dollar. The merchandise in this case is typically upscale home furnishings, house wares, gift items, some toys, and a very limited selection of sporting goods, to name a few.  But, this retailer, which is not small with more than 840 stores in 47 states as of last June, continues to chug through this recession.  What’s more, the company is a net/net.

It was a net/net 5 weeks ago when it hit a low price of $.51, and it’s still a net/net today, despite the fact that it’s up 319% since then.   The company was profitable on a trailing twelve month basis through December, although that’s likely to change when the company reports final third quarter numbers on April 27.

Yet shares have surged, due in part to a rising market tide, perhaps a light at the end of the economic tunnel, and the fact that Q3 sales dropped a better than expected -6.4%, while same store sales fell 9.5%.  The company, although light on details until the earnings call (other than that sales fell to $167 million from $178.4 million for the quarter; and earnings will be in the -$.15 to-$.17) also announced that trends and customer traffic appear to be improving.

With current assets of $278 million and total liabilities of $118 million, Tuesday morning’s net current asset value of $160 million is far in excess of its $91 million market cap.  Although operating in a treacherous retail environment, the company carries just $2 million in long-term debt.

Of course, retailers that don’t own their real estate, as is Tuesday Morning’s case, typically have operating leases, which don’t show on the books.  Tuesday Morning currently has $190.5 million in operating leases, which can’t and should not be ignored.

But, at its current price of $2.10, Tuesday Morning is trading more or less as a call option on what was once a pretty decent business; a call option on a pickup in the economy and consumer spending. It’s certainly not for the faint of heart, but net/nets, especially retail net/nets usually aren’t.

Tuesday Morning
Ticker: TUES
Price: $2.10
Market Cap: $91 million
Net Current Asset Value (NCAV): $160 million
Mkt Cap/NCAV: .57
P/E: 74 (through December)
Cash: $5.8 million
Debt: $ 2 million
Enterprise Value: $80 million
Locations: 842 (June, 2008)
Price/Book: .37

Jonathan Heller, CFA
Position:  Long TUES